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Monetary policy and inequality: Distributional effects of asset purchase programs

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  • Çerçil, İrfan
  • Aksaray, Gorkem

Abstract

Income and wealth inequality have been steadily rising in developed countries since the 1970s. Unconventional monetary policy has recently come under increasing scrutiny for its role in exacerbating this trend. In response to the 2008 global financial crisis, central banks in many developed countries have started to engage in large-scale asset purchase programs (APPs), also known as quantitative easing (QE), to stimulate their economies. This paper investigates how these programs have influenced inequality. Using panel data from 49 countries between 1999 and 2019, we apply local projections (LP) method to estimate the average treatment effect (ATE) of APPs on income and wealth inequality. To address endogeneity, we use propensity scores and the augmented inverse probability weighting (AIPW) estimator. Our results reveal a discernible relationship between APPs and increased inequality. Specifically, we find that while the impact of APPs on income inequality fades over time, their effect on wealth inequality is more pronounced and persistent. Our research contributes to the ongoing debate about the distributional consequences of monetary policy, offering practical insights for policymakers.

Suggested Citation

  • Çerçil, İrfan & Aksaray, Gorkem, 2025. "Monetary policy and inequality: Distributional effects of asset purchase programs," Journal of International Money and Finance, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:jimfin:v:157:y:2025:i:c:s0261560625001196
    DOI: 10.1016/j.jimonfin.2025.103384
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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